Brisk policy on raising the US debt ceiling risks “serious economic costs” even without the “catastrophe” of a default, Treasury Secretary Janet Yellen warned in financial talks on Thursday of the Group of Seven in Japan.
Hours earlier, former President Donald Trump urged Republican lawmakers to trigger America’s first debt default by refusing to raise the limit if Democrats don’t agree to the spending cuts.
President Biden has threatened to cancel his upcoming trip to Asia, including attending next weekend’s G-7 summit in person, if the deepening standoff is not resolved soon.
“In my assessment, and that of economists in general, the failure of the United States to meet its obligations would produce an economic and financial catastrophe,” Yellen said in a speech.
“Short of a default, risky debt ceiling policy can also impose serious economic costs,” Yellen said as she began a three-day meeting of finance ministers and central bank chiefs in the port city of Niigata ahead of the summit. of the G-7 later this year. month in Hiroshima.
Lifting the so-called debt ceiling, a limit on government borrowing to pay bills already incurred, is often routine.
But the Republicans, who won control of the House of Representatives in 2022, have promised only to raise the limit from its current maximum of $31.4 trillion if spending restrictions are enacted.
last week Yellen warned that the United States could run out of money to meet your financial obligations as of June 1.
After reviewing recent federal tax receipts, our best estimate is that we will not be able to continue to meet all government obligations in early June, and possibly as soon as June 1, if Congress does not raise or suspend the tax limit. debt before that date. ”Yellen wrote in a letter to lawmakers.
On Thursday, he recalled a similar deadlock in 2011 that resulted in the United States losing its coveted AAA debt rating.
A high-stakes meeting with Mr. Biden and key lawmakers from both parties on Tuesday. did not give any progressbut the group agreed to keep trying to avoid a default.
But on Wednesday, Trump, a front-runner for the 2024 Republican presidential nomination, urged otherwise during a live town hall broadcast on CNN.
“Republicans, congressmen, senators, if they don’t get massive cuts, they’re going to have to declare by default,” he said.
When asked about Trump’s comments, Yellen said: “The United States should never default” because “it would be tremendously damaging economically and financially.”
“The notion of defaulting on our debt is something that would so undermine the US and world economy that I think everyone should consider it unthinkable,” he said, adding that he is “very hopeful that the differences can be bridged and the debt ceiling will be raised.” Debt”.